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Last year, Wal-Mart rolled out a prepaid debit card product in league with Green Dot, designed to serve Wal-Mart's favorite targeted market: the unbanked and the underbanked. This week, the retail giant unveiled a partnership with an even bigger partner, American Express, to launch "The Bluebird Account."
The Bluebird accounts will have no minimum balance requirement and no monthly maintenance, annual or activation fee. Customers can access their money for free using one of 22,000 American Express MoneyPass ATMs, but will be hit with a $2 fee if they are not enrolled in direct deposit.
Walmart says the card was launched in response to consumers who say they are not getting the value they expect from traditional bank accounts with debit cards because of their increasingly higher fees.
According to the linked article by Fortune's Halah Touryalai, American Express is treating these transactions in the same manner it handles its traveler's checks and not as debit card transactions, which, according to bank analysts Dick Bove, permits Wal-Mart and Amex to avoid the Durbin Amendment's limit on interchange fees. The fact that it looks to the consumer like a debit card, and effectively works the same way, means that it's bound to attract some people who are put off by bank fees or otherwise wouldn't have a bank account.
The FDIC isn't keen on non-bank prepaid debit cards, which is no surprise. The FDIC claims that "[p]articipation in the banking system...protects households from theft and reduces their vulnerability to discriminatory or predatory lending practices."
Would those alleged "practices" by non-banks be akin to the alleged "discriminatory" practices in which the US Justice Department alleges that FDIC-insured banks engage? The kind of practices that have a "disparate impact" on minority groups? I'm not saying that such disparate impact allegations have any merit, but when it comes to finger pointing by the FDIC toward non-FDIC financial service providers, I'd suggest that the pot not be calling the kettle black. Wal-Mart and American Express don't seem to pose any more threat to prepaid card users than, say, Wells Fargo does to the FHA.
Wal-Mart scares the pants off of bankers. It should. As I asserted a few years ago, since it was effectively prevented by the FDIC from obtaining a bank charter, "Wal-Mart is using the avenue open to it (not ideal, but workable) to cement its relationship as a low-cost provider of financial services to working class Americans. The Beast of Bentonville refuses to be tamed."
Another point: if Wal-Mart has found a way around the Durbin Amendment, wouldn't financial institutions be advised to take a closer look?
